Homework Help is Here – Start Your Trial Now!
Business
Accounting
At January 1, 2021, Café Med leased restaurant equipment from Crescent Corporation under a nine-year lease agreement. The lease agreement specifies annual payments of $25,000 beginning January 1, 2021, the beginning of the lease, and at each December 31 thereafter through 2028. The equipment was acquired recently Crescent at a cost of $180,000 (its fair value) and was expected to have a useful life of 12 years with no salvage value at the end of its life. (Because the lease term is only 9 years, the asset does have an expected residual value at the end of the lease term of $50,995.) Both (a) the present value of the lease payments and (b) the present value of the residual value (i.e., the residual asset) are included in the lease receivable because the two amounts combine to allow the lessor to recover its net investment. Crescent seeks a 10% return on its lease investments. By this arrangement, the lease is deemed to be a finance lease to the lessee. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) Required: 1. What will be the effect of the lease on Crescent's earnings for the first year? (ignore taxes) (Enter decreases with negative sign.) 2. What will be the balances in the balance sheet accounts related to the lease at the end of the first year for Crescent? (ignore taxes) 1. 2. X Answer is complete but not entirely correct. Effect on earnings Lease receivable balance (end of year) $ (30,934) X $ 140,776 X

At January 1, 2021, Café Med leased restaurant equipment from Crescent Corporation under a nine-year lease agreement. The lease agreement specifies annual payments of $25,000 beginning January 1, 2021, the beginning of the lease, and at each December 31 thereafter through 2028. The equipment was acquired recently Crescent at a cost of $180,000 (its fair value) and was expected to have a useful life of 12 years with no salvage value at the end of its life. (Because the lease term is only 9 years, the asset does have an expected residual value at the end of the lease term of $50,995.) Both (a) the present value of the lease payments and (b) the present value of the residual value (i.e., the residual asset) are included in the lease receivable because the two amounts combine to allow the lessor to recover its net investment. Crescent seeks a 10% return on its lease investments. By this arrangement, the lease is deemed to be a finance lease to the lessee. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) Required: 1. What will be the effect of the lease on Crescent's earnings for the first year? (ignore taxes) (Enter decreases with negative sign.) 2. What will be the balances in the balance sheet accounts related to the lease at the end of the first year for Crescent? (ignore taxes) 1. 2. X Answer is complete but not entirely correct. Effect on earnings Lease receivable balance (end of year) $ (30,934) X $ 140,776 X

Intermediate Accounting: Reporting And Analysis
Intermediate Accounting: Reporting And Analysis
3rd Edition
ISBN:9781337788281
Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Chapter20: Accounting For Leases
Section: Chapter Questions
Problem 10MC: On August 1, 2019, Kern Company leased a machine to Day Company for a 6-year period requiring...
See similar textbooks
icon
Related questions
Question

Domestic 

At January 1, 2021, Café Med leased restaurant equipment from Crescent Corporation under a nine-year lease agreement. The lease agreement specifies annual payments of $25,000 beginning January 1, 2021, the beginning of the lease, and at each December 31 thereafter through 2028. The equipment was acquired recently Crescent at a cost of $180,000 (its fair value) and was expected to have a useful life of 12 years with no salvage value at the end of its life. (Because the lease term is only 9 years, the asset does have an expected residual value at the end of the lease term of $50,995.) Both (a) the present value of the lease payments and (b) the present value of the residual value (i.e., the residual asset) are included in the lease receivable because the two amounts combine to allow the lessor to recover its net investment. Crescent seeks a 10% return on its lease investments. By this arrangement, the lease is deemed to be a finance lease to the lessee. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) Required: 1. What will be the effect of the lease on Crescent's earnings for the first year? (ignore taxes) (Enter decreases with negative sign.) 2. What will be the balances in the balance sheet accounts related to the lease at the end of the first year for Crescent? (ignore taxes) 1. 2. X Answer is complete but not entirely correct. Effect on earnings Lease receivable balance (end of year) $ (30,934) X $ 140,776 X
Transcribed Image Text:At January 1, 2021, Café Med leased restaurant equipment from Crescent Corporation under a nine-year lease agreement. The lease agreement specifies annual payments of $25,000 beginning January 1, 2021, the beginning of the lease, and at each December 31 thereafter through 2028. The equipment was acquired recently Crescent at a cost of $180,000 (its fair value) and was expected to have a useful life of 12 years with no salvage value at the end of its life. (Because the lease term is only 9 years, the asset does have an expected residual value at the end of the lease term of $50,995.) Both (a) the present value of the lease payments and (b) the present value of the residual value (i.e., the residual asset) are included in the lease receivable because the two amounts combine to allow the lessor to recover its net investment. Crescent seeks a 10% return on its lease investments. By this arrangement, the lease is deemed to be a finance lease to the lessee. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) Required: 1. What will be the effect of the lease on Crescent's earnings for the first year? (ignore taxes) (Enter decreases with negative sign.) 2. What will be the balances in the balance sheet accounts related to the lease at the end of the first year for Crescent? (ignore taxes) 1. 2. X Answer is complete but not entirely correct. Effect on earnings Lease receivable balance (end of year) $ (30,934) X $ 140,776 X
Expert Solution
steps

Step by step

Solved in 4 steps with 1 images

SEE SOLUTIONCheck out a sample Q&A here
Blurred answer
Knowledge Booster
Lease accounting
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.
Similar questions
  • SEE MORE QUESTIONS
Recommended textbooks for you
Intermediate Accounting: Reporting And Analysis
Intermediate Accounting: Reporting And Analysis
Accounting
ISBN:
9781337788281
Author:
James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher:
Cengage Learning
Financial Accounting Intro Concepts Meth/Uses
Financial Accounting Intro Concepts Meth/Uses
Finance
ISBN:
9781285595047
Author:
Weil
Publisher:
Cengage
SEE MORE TEXTBOOKS